Can the Government Restrict the Confidentiality Term in My Settlement Agreement?

Posted by Edward Sharkey on Wed, 12/07/2016 - 05:00

Confidentiality is key when resolving claims in the employment context. In fact, sometimes it is the most important part of a settlement or severance agreement. Recently, federal regulators have decided the business world needs feedback on how much confidentiality is reasonable. The government is concerned that some confidentiality provisions may discourage employees from participating in certain protected activity - like whistleblowing.

The SEC recently issued a cease and desist order requiring a company to remove language from its severance agreements prohibiting employees from accepting monetary awards from the SEC for whistleblowing complaints.

OSHA soon followed, issuing new guidelines on the types of provisions it will not approve in settlement agreements. The guidelines, and interpretations of them, require employers to change the way they are drafting settlement agreements.

Provisions that were not an issue before will now cause a settlement agreement to be rejected. Broad language, on its own, can also be an issue. In general, language that restricts an employee’s ability to provide information to the government, participate in investigations, file a complaint, or testify in proceedings based on a respondent’s past or future conduct will be rejected.

Some examples of problematic language are:

• Provisions that require a complainant to notify his or her employer before filing a complaint;

• Settlement agreements that contain a waiver of accepting monetary awards from the SEC for whistleblowing complaints;

• Provisions that require an employee to affirm that he or she has not previously provided information to the government, or engaged in other protected activity.

OSHA also expressed concern about agreements imposing liquidated damages on a breaching party. Although the agency did not ban the practice, it may do so in future guidelines.

Given that the need for confidentiality is not going away, businesses need to be mindful of the regulators' rules in order to craft terms that can be enforced.